Abstract:This study empirically tests shareholder wealth effects at the announcement of acquisitions of foreign firms by Chinese firms. Listed firms in China are unique in that the ratio of shareholding by the state or state-owned enterprises is high in many firms, and their shares listed sorely in Chinese domestic stock markets are restricted for foreign investors to trade. We find that, although abnormal return of acquiring firm is not significant for the entire sample, it is positive and significant for sub-sample that acquiring firms are listed on either the U.S. or Hong Kong stock exchange. In addition, abnormal return is significantly lower in cases that major shareholders of acquiring firms are state or enterprises owned by state. These results are consistent with the argument that market-based governance is more effective than large-shareholder-based governance.

Authors: Kotaro Inoue, Taotao Chen, Yujie Zhu, Cong Yan, Shuang Song

Working Paper, School of Economics and Management, Tsinghua University. Paper accepted by Midwest Finance Association 2013 Annual Meeting.